Helicopter owners are in for major sticker shock when they receive their next insurance premium bill, particularly private pilots and small commercial operator. So counsels Matt Drummelsmith, president of insurance brokerage Aviation Specialty Insurance. Drummelsmith said premiums are in some cases even doubling, while some carriers are dropping customers and others are refusing to underwrite entire policies. Drummelsmith says the carnage “already is in full swing” and no one is immune. “It doesn’t matter what you size, scope, or experience is,” he said. “Some carriers are not even quoting at this point and those that are are taking a much harder look at pilots and operations. Things that could be underwritten six to eight months ago are now being declined, the policies that are being written have heavy restrictions, and some premiums are even doubling. It’s a much harder process,” especially for new helicopter buyers, cautioned Drummelsmith.
A low-time pilot in a Robinson R44 could easily face premiums of up to $20,000 a year in this environment, he notes. Drummelsmith said the premium increases are being fueled by ballooning accident settlement costs that now can run into nine figures, especially with EMS operators. “Carriers don’t want any new liability in this segment,” he said. “And they quote accordingly.”
In his own practice, Drummelsmith gives the example of the difficulty obtaining insurance for a client with a Bell 429 that is dual-pilot, professionally flown. “This client should have been a slam dunk for any carrier out there,” he said. Instead, Drummelsmith needed to find several carriers to take on portions of the policy. He said policies for large helicopters now sometimes need as many as five carriers to share the risk.
While premiums that double are on the extreme end of the spectrum, Drummelsmith warns that even good operators with good safety records are in for pain. “Low-risk Part 91 operators will likely see increases of between five to ten percent, while an EMS operator with 15 to 20 claims of any kind, which is not all that uncommon, will easily see premium increases above 20 percent,” he said. New buyers who operate single pilot will take the biggest hits. Drummelsmith says that those operators can get insurance, but with large deductibles, sometimes as much as $250,000. Even then companies are increasingly reluctant to insure for anywhere near full hull value, sometimes leaving aircraft owners with an insured exposure equivalent to 15 to 25 percent of the aircraft’s value.
Ironically, the premium increases come at a time when the overall accident rate, particularly the fatal accident rate, for helicopters is trending down dramatically. But, Drummelsmith insists, that doesn’t matter. “Even if accidents are down, it doesn’t mean they aren’t severe; insurance companies base premiums not on the count, but on the amount of the claims paid,” Drummelsmith said, noting that individual helicopter accidents now can trigger settlements up to $500 million. Those potential liabilities are driving some insurers from the marketplace.
It’s already happening in Europe he said, noting that nine European aviation insurance syndicates closed their doors or merged in recent years and two more carriers closed in the U.S., including W.R. Berkley. “Smaller carriers, mainly of aviation insurance, don’t have the capacity to write policies with ten to thirty million dollar limits anymore,” Drummelsmith said, “and big carriers don’t want to be hit with writing a massive check.” The situation overall is creating “a hell of a lot more work for people in the brokerage world,” he said. “We spend most of our time just trying to keep clients in comparable policies at a reasonable rate.”
While larger settlements are driving some of the rate increases, so is the downturn in the lucrative medium and large helicopter operator segment that services the offshore energy industry. With substantially fewer helicopters flying in that market, the aggregate amount of premiums paid has declined and insurers need to make that money back on the remainder of helicopters flying, a spokesman for one helicopter OEM told AIN.
The impact of all of this could be substantial on both the used and new helicopter market, said Jason Kmiecik, acting president of HeliValue$, the helicopter sales tracking and valuation firm.
“This is going to put a large hurt on some operators,” he said, possibly to the point of forcing some operators out of business, and depressing helicopter prices. “This market does not need any more machines for sale than it already has,” he said.
Drummelsmith thinks the rate hikes are temporary, but there really is no effective way an operator can shield from the impact. “Once the market normalizes, it will be back to a buyer’s market,” he said.